President Proposes Tax Hikes on Marketplaces Industry

On March 28, 2022, the Biden Administration released its $5.8 trillion budget proposal for the federal government’s upcoming 2023 fiscal year. The president’s budget is more of a policy wish list.  While it signals the Administration’s priorities, it is up to Congress to decide which, if any, of its recommendations to enact into law. 

One of the new tax proposals directly affecting the marketplaces industry would increase the rate at which depreciation deductions are recaptured upon the sale of a real estate asset. Under the current tax rules (Section 1250), prior depreciation deductions taken by the taxpayer are generally recaptured and taxed at a special 25% capital gains. The president proposes taxing them instead at ordinary income tax rates for taxpayers with incomes exceeding $400,000.

The largest new tax increase proposal would impose a 20% minimum tax on high-income taxpayers with more than $100 million in wealth. The 20% tax would be imposed on all income as well as unrealized capital gains. It is similar to other wealth tax proposals that have failed to gain traction in Congress.

As in his first budget proposal, the president again recommends:

• Capping the annual deferral of gain from 1031 like-kind exchanges at $500,000 per taxpayers ($1 million per married couple);
• Ending the capital gains treatment of “the promote” or carried interest;
• Ending stepped-up basis and taxing most inherited assets with more the $5 million of gain at death;
• Increasing the top rate on ordinary income to 39.6%;
• Taxing capital gains as ordinary income for taxpayers making more than $400,000.

The outlook for any significant tax legislation remains uncertain. The House declined to include the president’s FY 2022 proposals in its version of the Build Back Better bill, which it passed last fall. That effort stalled mid-December when Sen. Joe Manchin (D-WV) said he would not support it. The senator, however, has recently signaled a willingness to restart negotiations.

Additional details about the Administration’s tax proposals can be found here.

For more information, contact ICSC Global Public Policy at gpp@icsc.com.